The problems of the financial system have started to affect the “real” economy. But the medicine for Wall Street may become the poison of Main Street.

As an example, there is serious talk of giving $10 billion to General Motors to fix their financial situation. They are short of cash and losing more every day. If granted, they propose to merge with Chrysler, and the combined operation by making economies will become profitable. That’s good for the companies, but is it good for the country?

The combined units will eliminate duplication, resulting no doubt in the firing of many employees (and even some managers.) The unemployed will become a burden on society, mitigated to be sure by unemployment insurance. That insurance in essence is to be paid by the entire society, and we should gladly do so.

Suppose we let the two companies work together without giving them $10 billion to grease the merger. If they propose to fire a worker we pay the company the unemployment benefit if they keep the employee. That extra subsidy could be enough to make that action profitable.

This is but an example, and it need not even be a good one to justify the general principle. The whole economy (not the financial structure) works better when there is full employment. So why pay for unemployment? Instead of aiding the financial system to run over our production system, let us give them a seeming subsidy to get them out of the way. Most of that subsidy would be recovered anyway, because we would save on unemployment insurance and get the remainder back in taxes on both company and workers.

We as scientists know that the proper place for derivatives is not on Wall Street, but in our equations. There they are an instrument for understanding nature, and then putting her to work for society.